Which ratio exceeding 1 can indicate a company has not yet reached maturity?

• A. Capex/depreciation ratio greater than 1
• B. Capex/depreciation ratio less than 1
• C. Return on equity exceeding 20%
• D. Current ratio above 3

Answer: (A)

A company that is still in a growth phase tends to reinvest heavily in fixed assets, boosting its asset base to expand capacity. The capex-to-depreciation ratio compares how much is spent on capital expenditures relative to what assets wear out through depreciation. When this ratio exceeds one, capex is greater than depreciation, meaning the company is building more assets than it is replacing the consumed ones. This ongoing, aggressive investment signals expansion and a path toward reaching maturity, not yet there.

If capex is less than depreciation, the asset base is aging or being replaced more than new capacity is added, which aligns more with a mature or slowing framework. A high return on equity can occur in both growth and mature stages and doesn’t by itself indicate maturity. A current ratio above three reflects liquidity rather than maturity.